Be sure your LLC protects as intended: Three flaws to avoid
Fact checked by Mindy Valcarcel, MS
Asset protection is a wealth planning area many physicians prioritize, especially those in high-liability specialties.
This makes sense given that malpractice liability can exceed insurance coverage limits, and there is a host of other risks outside of malpractice — from privacy breaches and employee claims at a practice, landlord liability from rental real estate, personal liability from contracts and personal guarantees, and even auto accidents.
One of the most common tools doctors use to shield assets from liability is the limited liability company (LLC).
In other Residency to Retirement articles and our book, we delve into the pros and cons of the LLC tool, as compared with exempt assets and other legal structures, like trusts.
In this article, I will focus just on the LLC itself, covering three common flaws I have seen over 30 years when examining doctors’ LLCs and offering suggestions for improving their protection.
Not maintaining all LLC formalities
I mention annual formality compliance first because it is probably where most physicians fail with regard to their entities. Simply put — if you are not having at least an annual review of the following areas (and this is a partial list), then the LLC may not get respect from the law if it is ever challenged. Such annual compliance should include at least:
- filing of annual state forms and federal/state/local tax forms;
- annual meeting and minutes;
- a review of all relevant insurances, contracts, leases, etc., in the name of the LLC;
- update(s) to LLC agreement language based on any relevant legislative or case law changes;
- gifting program, if applicable, including assignments and gift tax filings; and
- additional requirements based on specifics to your entity’s circumstances.
Read the full article on Healio.